Development Zone Legislation

• Such a designation (development zone) would make available incentives that could enhance the area's competitive position and thereby strengthen its economic revitalization.

A number of proposals for the creation of development zones in Wisconsin are currently being studied and deliberated.  Development zones - more commonly known as enterprise zones - are typically established in economically depressed areas or "pockets of poverty" to provide short-term economic incentives to businesses that locate, operate, and provide jobs within the designated zones.  Although enterprise zones legislation was stalled from 1982 to 1987 at the federal level, 36 states have passed such legislation and 26 states have designated one or more zones.  Local awareness of this type of program is high due to the significant number of enterprise zones credits that the Minnesota program has allotted to Duluth.  Border cities like Duluth are a specific emphasis area in the Minnesota legislation.  Superior and Douglas County are presently unable to offer comparable incentives.

A proposal in the 1987-89 Biennial Budget that entailed the designation of Superior as a development zone was included in the governor's veto package.  Although the governor's veto message maintained that "the program as structured by the Legislature is unworkable and would not be effective," it concluded with a statement that the governor would "continue to pursue development zones in future legislation."  Governor Thompson subsequently included development zone legislation in the Special Session Bill dealing with welfare reform introduced last November and in a December 4, 1987, memorandum to agency heads he indicated his support of the development zone package contained in Senate Substitute Amendment 1 to Senate Bill 265.

While the final form of any development zone legislation remains to be worked out, the momentum and consensus for such a program appears to be building.  Superior and Douglas County strongly support the concept of development zones because such a designation would make available incentives that could enhance the area's competitive position and thereby strengthen its prospects for economic revitalization.

As currently proposed, the Wisconsin Development Zone Program would be administered by the Department of Development (DOD).  (Note: New proposals were occurring as this document went to print.  The following reflects information available in mid-February.)  The two goals of the program are to stimulate economic development in areas suffering from economic hardship and to improve both the quantity and quality of employment opportunities available to residents of the zone area and other persons who face barriers to employment.  The DOD would be able to designate up to ten development zones with half in urban areas and half in rural areas.  As a "pilot program" the number and geographical dispersion of the zones will ideally permit experimentation in the use of this economic development tool, with future decisions on the expansion of the program to be based on the relative degrees of success of the initial zones.

Cities, villages, towns, counties, and Indian reservations would apply to DOD for the designation of areas within their jurisdictions as development zones.  In order to qualify, the proposal calls for areas to meet at least tow of the following five criteria:

• An unemployment rate that is above 150 percent of the national or state average, whichever is lower, over the last 18 months.
• A population decrease of at least 10 percent over the last ten years.
• An income level in which at lease 20 percent of the residents are at or below 80 percent of the lower level standard of living budget for urban families.
• The area is eligible under the federal Urban Development Action Grant (UDAG) program
• the property value of the last assessment is lower than the assessment two years earlier.

Although data constraints and criteria values dependent upon time of computation prevent definitive statements, it would appear that Superior and Douglas County would meet the criteria as presently proposed.

Actual designation of the locations of development zones by the DOD, after a review and evaluation of the applications, would be based on criteria measuring the following:

• Degree and pervasiveness of the distress criteria.
• Level of community support for the zone, including the provision of technical assistance to businesses.
• The local governing body's commitment to providing services and resources or eliminating impediments in order to enhance the success of the zone.
• The extent to which the projected developments will increase the quantity and quality of the employment opportunities available to the targeted populations.

Although information on specific means of quantifying the above criteria have not been detailed, the Superior-Douglas County area would once again apparently fare well in terms of qualifying - particularly in the areas of local support and commitment.

Development zone designation would be effective for a seven-year period, with the possibility for three one-year extensions of zone status if the area continued to meet the eligibility criteria.  Limits would be placed on total state tax expenditures for the entire development zone program resulting from the use of the state tax incentives.  The Development Zone Program would provide tax incentives that include:

• A 2.5 percent investment tax credit on depreciable personal property (eligible expenses on property bought within the zone).
• Refundable jobs credit equal to 25 percent of the federal Targeted Jobs Tax Credit on wages paid to specific targeted groups such as welfare recipients.
• An income tax credit for sales and use taxes paid on equipment and construction materials.
• A sliding scale of federal income tax exemptions on income generated by a business during its first four years in the development zone (from 80 percent in the first year to 20 percent in the fourth year with annual 20 percent incremental reductions in the exemption).

The program would also include an anti-pirating requirement that prohibits a person or firm from being certified for tax benefits if the proposed economic activity in the development zone would result in a direct loss of jobs at another business location in Wisconsin that is outside the zone.

Figures indicate that the country's state-level enterprise zone programs have resulted in considerable gains.  The May 1987 edition of Business Facilities reported a cumulative total of 113,600 new jobs created by enterprise zones, with an annual increase of 32,100 jobs over the previous year's report; 67,400 retained jobs with an annual increase of 15,600 jobs; and a total capital investment of $8.8 billion with an annual increase of $2.2 billion.  A highly visible local example is the recently-opened Lake Superior Paper Industries in Duluth.  This project received $5.5 million in enterprise zone credits and is expected to create 600 jobs.  Superior and Douglas County look forward to the time when this potent economic development tool will become a complementary component of local government efforts.